March 25, 2020
Neiman Marcus has approximately $5.30 billion in debt; although a recent restructuring moved most of the maturity dates out to 2023, it has more than $100.0 million maturing in 2021. The Company has stopped issuing financial statements to the SEC; however, Neiman Marcus reported around $38.0 million in cash with revolver availability of $524.0 million under its $900.0 million secured revolver as of 2Q20 ended in February. The ongoing pandemic is certain to place additional pressure on liquidity, and the Company recently announced it was shuttering most of its Last Call locations (click here for a complimentary list).
Amazon’s Whole Foods has postponed the opening of a 43,000 square-foot Castle Rock, CO, store, which originally was scheduled for April 2. Details on the new opening date will be given as soon as possible.Click here for a list of future openings and closings.
In other news, Amazon has leased about one million square feet for a new logistics operation north of Atlanta, GA. It includes one facility at 815,000 square feet, the other at just over 300,000 square feet. Amazon is also exploring a site in south metro Atlanta for a $250.0 million – $500.0 million robotics-fulfillment center. The facility is reportedly close to one million square feet.
Amazon / COVID-19 Special Analysis
As part of our ongoing coverage of COVID-19, this Special Analysis examines how the coronavirus has affected Amazon, its sellers, and the U.S. consumer.
A list of 25 Forever 21, DIP stores to be closed was submitted by Authentic Brands Group (in conjunction with Simon Property Group and Brookfield Property Partners), which purchased substantially all of the Debtors assets on February 19. The buyers acquired leases on 448 stores; additional units may be targeted for closure in the future. Please click here to see the list.
As part of its transformation strategy and advice from an outside consultancy firm, RTW Retailwinds announced it would permanently close up to 150 stores in the next 18 months. The Company did not disclose the financial impact of this action but said it remains focused on growing digital sales and transitioning to a more balanced direct-to-consumer business model.
Traci Inglis, current chief marketing and customer officer, will replace Gregory Scott as CEO, effective April 17. After nine years with the Company, Mr. Scott stepped down from his role for personal reasons. Ms. Inglis will focus on digital marketing and any additional opportunities to introduce celebrity brands. She has been with the Company since June 2019. Before Retailwinds, she was the president of global brands at TechStyle Fashion Group since March 2017. Ms. Inglis has also held various marketing roles at Hot Topic, Express, and Alliance Data Systems. Click here for more information.
On March 18, Yum! Brands completed its acquisition of The Habit Restaurants for $375.0 million ($14 per share). The deal, previously agreed to on January 7, adds 271 fast-casual hamburger restaurants to Yum’s network of over 50,000 restaurants under the KFC, Pizza Hut, and Taco Bell banners. Yum funded the acquisition with revolver borrowings and cash on hand. The Habit will continue to operate as an independent brand and subsidiary of Yum!
Many sporting goods chains had been attempting to keep their stores open but are finding it increasingly difficult due to malls closing temporarily as well as mandatory state and city closures. Last week, Dick’s Sporting Goods closed all its stores, but it continues to provide delivery and in-store pickup. One area that is getting a boost is firearms and ammunition sales, as evidenced by media reports showing long lines at gun stores and reports of ammunition stocks running low. Click here to request a list of openings and closings.
The TJX Companies announced several actions in response to the rapidly changing market uncertainty. Effective March 19, the Company closed all of its stores in the U.S., Canada, Europe, and Australia for two weeks. In certain regions, including Germany, Poland, Austria, Ireland, and the Netherlands, and a number of U.S. and Canadian locations, TJX had previously closed stores based on several factors, including government or health department requirements. The Company is also closing its online businesses tjmaxx.com, marshalls.com, and sierra.com. Further, TJX is temporarily closing its distribution centers and offices. The Company plans to pay store, distribution center, and office associates for two weeks during these closures. Click here for a list of future openings and closings.
To further strengthen its financial position and balance sheet, and maintain financial liquidity and flexibility, the Company is drawing down the entire $1.00 billion from its revolving credit facilities, suspending its share repurchase program, evaluating its dividend program, reviewing all operating expenses, and reducing capital expenditures. The Company also announced that it is withdrawing its 1Q and Fiscal 2021 guidance given on its February 26 earnings call. The Company is not providing an updated outlook at this time.
Today, Target withdrew its guidance for the first quarter and full year due to the fluid nature of the economic impact of the Coronavirus. The Company also updated several strategic initiatives for FY20. Target had anticipated completing 300 remodels in the coming year; this has been reduced to 130, with the remaining rolled into FY21. New store openings are now expected in the 15-20 range versus the announced 36, all of which will be small format stores.
Target updated its current financial performance during 1Q. The first three weeks of the quarter saw comps inline with its initial guidance of growth in the low single digits.. Beginning in the fourth week of February and the first part of March, the Company saw significant traffic increases, with comps for February increasing 3.8%. The surge continued into March with comps averaging 20% above last year. Sales have been focused on lower margin non-discretionary items in essentials and food, with a fall off in higher margin, discretionary items (Essentials up 50%, Apparel and Accessories down 20%). Target anticipates an incremental $300.0 million in costs during the quarter due to additional cleaning/disinfecting and higher wages. Click here for a sample list of future openings.
Yesterday, Grocery Outlet announced that on March 19, 2020, it borrowed $90.0 million under its $100.0 million revolving credit facility. Contrary to what would appear to be the retail grocery trajectory, the Company commented the drawdown was "a precautionary measure in light of the economic uncertainty surrounding the current Covid-19 pandemic." Cash and cash equivalents totaled $28.1 million at the end of the fourth quarter of fiscal 2019 (December 28, 2019).
Additionally, though the Company is not providing formal 2020 earnings guidance at this time, the Company eluded to comps of near 40% for the period beginning in March as it saw "customer demand, both traffic and ticket, begin to build in conjunction with concerns surrounding the coronavirus". However, it also noted the operating environment is fluid, it is impossible to predict the magnitiude and duration of the impact, and that in the medium term there will likley be a pullback as refrigerators and pantries are full. Click here for a sample list of future openings.
Big 5 Sporting Goods Corporation reported yesterday that beginning on March 20, 2020, it has closed more than one-half of its stores in response to state and local shelter orders related to the COVID-19 outbreak. The Company’s e-commerce business is continuing. Because of the anticipated material negative impact of COVID-19 on its financial results and the uncertainty related to its duration, the Company is withdrawing its fiscal 2020 first quarter guidance.
Starting March 21, Starbucks moved all of its Company-owned restaurants in the U.S. and Canada to a drive-thru and delivery only model for at least two weeks. The Company had already shifted restaurants to a “To-Go” model on March 15 where customers could order at the counter, but management said stores with cafés were still seeing high traffic. Company-owned restaurants without a drive-thru have been closed, with the exception of certain locations near hospitals to serve healthcare workers. The Company will pay all workers for the next 30 days whether they go to work or not. This announcement does not impact licensed locations, though some licensees have followed the Company’s lead. Target announced on March 23 that it would close all Starbucks cafes in its stores and would transition the employees working there to other areas in the store.
Earning Reports
At Home's 4Q same-store sales fell 3.3%, beating the high end of its guidance with the Company exiting the quarter with an improved inventory position. Gross margins fell 440 bps, due to increased promotions and deleverage of occupancy costs on lower sales. Adjusted EBITDA of $61.5 million was a 2.5% decline from the prior year, as the Company struggled to handle the impact of tariffs and a shorter holiday season.
Five Below reported 4Q sales growth up 14% to $687.1 million, while comps fell 2.2%. Operating income increased 23.7%, to $144.1 million, from $116.5 million. During the quarter, the Company opened six new stores, bringing its store count to 900 stores in 36 states. This represents a 20% increase in stores over last year. It is targeting growth of 180 stores next year. The Company has closed its stores temporarily due to COVID-19. Click here to request a sample list of future openings and closings.
Ollie’s reported 4Q sales growth of 7.2% to $422.4 million, due to new store growth, but comps were down a disappointing 4.9%. The Company attributed the poor comp performance to product mix, as it made a significant investment in toys, which impacted other merchandise categories. The Company finished the fiscal year with 345 stores and is keeping its stores open for now through the COVID-19 pandemic, while looking to shift inventory more towards essentials. Click here for a sample list of future openings.
Duluth Holdings’ 4Q sales increased 3.6% to $259.6 million, driven by 11.6% growth in retail sales (37.3% of sales), partially offset by a 0.6% decline in e-commerce sales (62.7% of sales). Despite the e-commerce decline, the Company said online sales growth in established markets with a store continued to outpace markets without a store. Women’s sales (23.5% of total sales) increased 9.2%, while men’s sales (70.6% of total sales) increased 2.1%. Gross margin was up 40 basis points to 52.8%, and SG&A margin improved 40 basis points to 40%. Adjusted EBITDA rose 13.7% to $39.9 million. The Company opened 15 stores in fiscal 2019. Looking ahead, in response to expected impacts from the ongoing pandemic, the Company is focusing on managing expenses and capital spending levels. It has reduced new store openings, deferred certain technology and infrastructure projects, adjusted inventory receipt plans, and evaluated its bank line of credit to confirm access to the maximum capacity and commitment available.
Hibbett Sports’ 4Q sales increased 2.3% to $313.0 million, and comps were up 4%. This was the first quarter to include sales from City Gear. E-commerce sales represented 14.2% of total sales and increased 37% from the prior-year period, driven by strong results in footwear and connected apparel. Gross margin rose 40 basis points to 31.5%, but SG&A margin eroded 130 basis points to 26.8%, primarily due to acquisition costs related to City Gear. Operating income declined 13.1% to $7.8 million. The Company opened four new stores and closed 23 underperforming locations during the quarter, bringing its store base to 1,081 units in 35 states. Due to the ongoing economic uncertainty, the Company is not providing fiscal 2021 guidance. The Company aims to provide guidance in May, when it will release 1Q21 results.
First quarter to-date comps were positive through mid-March but turned negative in the last week as the COVID-19 impact grew. Most Hibbett and City Gear stores are open, with reduced hours and staffing, but about 100 mall-based stores closed, due to the entire malls closing. The Company is well positioned to withstand any disruption, as it has strong liquidity and a solid balance sheet with $66.1 million in cash and no debt, other than $2.5 million in capital leases.
Town Sports International’s 4Q sales increased 2.2% to $116.0 million. Membership revenue increased 5.5% to $359.2 million and represented 77% of total revenue. Ancillary club revenue rose 4.6% to $101.2 million and represented 21.6% of total sales. However, comps declined 1.2% due to six underperforming clubs that closed during 2019, offsetting the seven new clubs opened during the year. Adjusted EBITDA declined 32.7% to $9.9 million. The Company ended the year with 186 clubs, primarily located in the Northeast and Mid-Atlantic regions.
Roughly 95% of its clubs have been closed since March 16 due to the ongoing pandemic; its 10 Florida clubs will remain open until they are mandated to close. All non-executive employees at closed locations were terminated. On March 13, the Company borrowed $12.5 million from its $15.0 million revolving credit facility, and it is undertaking conversations with landlords to discuss rent relief. On Monday, the Company’s share price plummeted 45% to close below $1 after the Company issued a “going concern” warning. In its 10-K filing, the Company said, “These recent events further contribute to conditions that raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. Under the terms of the 2013 Term Loan Facility, this is considered an event of default, which allows the lenders to call the debt in advance of maturity.” There was $177.8 million outstanding under the term loan, which is due on November 15, 2020. The Company’s cash balance as of December 31, 2019 was $18.8 million.
Destination XL Group’s 4Q sales remained flat at $131.2 million, as a 1.1% comp increase was partially offset by closed stores. Gross margin declined 50 basis points to 43% due to a decrease in merchandise margin of 90 basis points, partially offset by a 40 basis-point decrease in occupancy costs. SG&A margin narrowed 290 basis points to 35.4% primarily due to reduced payroll and marketing costs. Adjusted EBITDA rose 45.6% to $9.9 million. The Company ended 2019 with 323 stores, down from 332 stores in 2018. All stores remain closed through at least March 28 due to the COVID-19 pandemic. The Company has significantly reduced operating expenses and CAPEX spending, and has cancelled future inventory receipts.
Cato’s 4Q sales decreased 0.8% to $190.9 million, while comps were up 1%. Gross margin increased 120 basis points to 34.3% due to improved merchandise margins, partially offset by higher occupancy costs. SG&A margin eroded 90 basis points to 35.6% due to higher incentive compensation, partially offset by lower store impairment charges. As a result, loss before income taxes narrowed 32.3% to $2.4 million. As of February 1, the Company had 1,281 stores in 31 states. All stores have been temporarily closed since March 19 and will remain closed through at least April 1.
Tailored Brands’ 4Q sales decreased 5.3% to $691.0 million, and comps were down 3%. By brand, comps were down 1.9% at Men’s Wearhouse (53.1% of total sales), down 5% at Jos. A. Bank (29.6% of total sales), down 10% at Moores (6.3% of total sales), and up 2.2% at K&G (11% of total sales). Gross margin decreased 450 basis points to 34.3%, but SG&A margin improved 10 basis points to 31.1%. The Company recorded an operating loss of $35.0 million, compared to income of $13.3 million in the prior-year period; the quarter included charges totaling $22.7 million associated with its sale of Joseph Abboud trademarks. The Company ended the year with 1,450 stores, which remain temporarily closed until at least March 28.
Williams-Sonoma’s 4Q sales inched up 0.4% to $1.84 billion, and comps were up 7.6%. By banner, comps were up 6.7% at Pottery Barn (34.7% of total sales), up 13.9% at West Elm (22.2% of total sales), up 3.3% at Williams Sonoma (23.9% of total sales), and up 7.9% at Pottery Barn Kids and Teen (15% of total sales). Gross margin declined 70 basis points to 36.3%, and SG&A margin narrowed 100 basis points to 28.4%. Operating income rose 1.4% to $203.7 million. Looking ahead to fiscal 2020, the Company suspended its guidance. As noted last week, all stores are closed through April 2; the Company will maintain its e-commerce sites. The Company ended fiscal 2019 with 211 Williams Sonoma locations, 201 Pottery Barn stores, 118 West Elm units, 74 Pottery Barn Kids stores, and 10 Rejuvenation locations.
GNC Holdings, Inc. reported total sales of $470.4 million, a 14.1% decline from the prior year, driven by 851 fewer stores and same-store sales of -2.4%, partially offset by ecommerce sales growth of 15%. Sales fell 7.3%, 20.4% and 85% in the U.S. and Canada, International and Manufacturing segments, respectively. A focus on cost controls, such as lower wages and occupancy costs, coupled with product margin improvements, aided profitability, though adjusted EBITDA fell nearly 25% from last year to $26.3 million as sales continue to stumble. Going forward the Company continues to optimize its store portfolio and work to improve same-store sales.
